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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-02-25 compared with 2024-02-27 · 17 added, 187 removed, 129 unchanged (61% of the section changed)

5 unchanged sentences

Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk.

The Company's Asset and Liability Management Committee (“ALCO”) uses simulation analysis to monitor changes in net interest income due to changes in market interest rates.

The Company's ALCO uses simulation analysis to monitor changes in net interest income due to changes in market interest rates.

The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to assess the impact of market interest rate swings.

The analysis of the impact on net interest income over a twelve month period is subjected to instantaneous changes in market rates on net interest income and is monitored at least quarterly.

The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on January 1, 2024, holding all other changes in the balance sheet static.

This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve nor changes in balance sheet size or mix.

The analysis of the impact on net interest income over a twelve- month period is subjected to instantaneous changes in market rates and is monitored at least quarterly.

The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on January 1, 2025, holding all balances on the balance sheet static.

It is important to note that the results in the table below assume parallel shifts in the yield curve and do not take into account changes in the slope of the yield curve nor changes in balance sheet size or mix.

% Change in Projected Baseline Net Interest Income

December 31, 2024

Changes in Interest Rates 1-12 months 13-24 months

Change in Interest Rates 1-12 months 13-24 months

+3.00% (16.6) (12.8)

2 unchanged sentences

-1.00% 3.6 1.6

-2.00% 6.9 2.0

-3.00% 10.3 2.8

The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates.

Management may adjust asset or liability pricing or structure in order to manage interest rate risk through an interest rate cycle.

This may include the use of investment portfolio purchases or sales or the use of derivative financial instruments, such as interest rate swaps, options, caps, floors, futures or forward contracts.

The Company's calculation of interest rate sensitivity for the year ended December 31, 2024 is presented below.

27 unchanged sentences

Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates or prices.

Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity (“EVE”) to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities).

Interest rate risk, defined as the exposure of net interest income and EVE to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities).

The Company is also exposed to market risk in its investing activities.

11 unchanged sentences

Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate life deposit portfolios.

Core deposits are a more significant

funding source for the Company, making the lives attached to core deposits more important to the accuracy of our modeling of EVE.

Core deposits are a more significant funding source for the Company, making the lives attached to core deposits more important to the accuracy of our modeling of EVE.

The Company periodically reassesses its assumptions regarding the indeterminate lives of core deposits utilizing an independent third-party resource to assist.

2 unchanged sentences

% Change in Economic Value of Equity

Changes in Interest Rates 2023

Changes in Interest Rates December 31, 2024

+3.00% (26.1%)

+2.00% (17.0)

While an instantaneous and severe shift in interest rates is used in this analysis, a gradual shift in interest rates would have a much more modest impact.

9 unchanged sentences

Mortgage origination and refinancing tends to slow as interest rates increase, and higher interest rates will likely reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

Table 1 - Capital Resources

(In thousands, except percentages) 2023 2022

Tier 1 Capital

Common stock $ 8,486 $ 7,162

Additional paid in capital 1,808,883 1,377,698

Retained earnings 467,305 423,863

Treasury stock (16,710) (13,019)

Goodwill (732,417) (480,319)

Intangibles (95,645) (71,285)

53,597 33,195

Common Equity Tier 1 Capital $ 1,493,499 $ 1,277,295

Qualifying Trust Preferred Debt $ 72,207 $ 84,533

Total Tier 1 Capital $ 1,565,710 $ 1,361,832

Tier 2 Capital

Allowance for credit losses on loans 1 , as limited

$ 126,553 $ 92,336

Qualifying subordinated debt 21,534 —

Total Tier 2 Capital 148,087 92,336

Total Risk-Based Capital $ 1,713,797 $ 1,454,168

Risk weighted assets $ 10,766,942 $ 9,208,859

Common equity Tier 1 ratio (CET1) 13.87 % 13.87 %

Regulatory minimum 2

Tier 1 capital ratio 14.54 14.79

Regulatory minimum 2

Total capital ratio 15.92 15.79

Regulatory minimum 2

Tier 1 capital to adjusted total assets 11.00 11.46

Regulatory minimum 4.00 4.00

Shareholders' equity to assets 14.46 13.24

Average shareholders' equity to average total assets 13.85 12.84

Tangible shareholders' equity to tangible assets 9.31 9.08

1 Upon adoption of the CECL accounting standard in 2020, the Company elected, in accordance with interagency guidance, to delay the estimated impact on regulatory capital resulting from the implementation of CECL.

The guidance provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option).

As of December 31, 2023 and 2022, the adjustment to Tier 1 Capital was $12.3 million and $18.5 million, respectively, and the adjustment to Tier 2 Capital was $15.1 million and $22.6 million, respectively.

2 Excludes the Basel III capital conservation buffer of 2.5% which, if not exceeded, may constrain dividends, equity repurchases and compensation.

Table 2 - Loans Outstanding

(In thousands) 2023 2022

Amount % to Total Loans Amount % to Total Loans

Construction and land development $ 767,622 8 % $ 587,332 7 %

Commercial real estate - owner occupied 1,670,281 17 1,478,302 18

Commercial real estate - non-owner occupied 3,319,890 33 2,589,774 32

Residential real estate 2,445,692 24 1,849,503 23

Commercial and financial 1,607,888 16 1,353,226 17

Consumer 251,567 2 286,587 3

Total Loans $ 10,062,940 100 % $ 8,144,724 100 %

Table 3 - Loan Maturity Distribution

The following table presents loans by maturity, separately presenting fixed rate loans from those with floating or adjustable rates.

December 31, 2023

After one year but within five years:

After five years but within fifteen years:

After fifteen years:

(In thousands) In one year or less Floating or adjustable Fixed Floating or adjustable Fixed Floating or adjustable Fixed Total

Construction and Land Development $ 197,008 $ 153,313 $ 67,833 $ 98,822 $ 46,411 $ 160,549 $ 43,686 $ 767,622

Commercial Real Estate - Owner Occupied 87,415 91,503 490,522 254,293 679,573 54,870 12,105 1,670,281

Commercial Real Estate - Non-owner Occupied 359,080 239,473 1,147,472 514,861 1,018,529 32,924 7,551 3,319,890

Residential Real Estate 10,571 20,400 13,303 322,655 144,353 1,004,145 930,265 2,445,692

Commercial and Financial 346,281 135,645 504,206 97,224 270,603 179,926 74,003 1,607,888

Consumer 11,568 35,957 79,469 12,325 58,870 24,284 29,094 251,567

Total $ 1,011,923 $ 676,291 $ 2,302,805 $ 1,300,180 $ 2,218,339 $ 1,456,698 $ 1,096,704 $ 10,062,940

Table 4 - Select Credit Ratios

For the Year Ended December 31,

(In thousands, except percentages) 2023 2022 2021

Daily average loans outstanding 1

$ 9,889,070 $ 6,838,266 $ 5,751,064

Ratio of allowance for credit losses on loans to loans outstanding at end of year 1.48 % 1.40 % 1.41 %

Ratio of net charge-offs (recoveries) to average loans outstanding

Construction and land development — % — % — %

Commercial real estate - owner occupied — — —

Commercial real estate - non-owner occupied — — 0.02

Residential real estate — — (0.02)

Commercial and financial 0.17 — 0.05

Consumer 0.05 0.01 —

Total ratio of net charge-offs to average loans outstanding 0.22 % 0.01 % 0.05 %

1 Net of unearned income.

Table 5 - Allowance for Credit Losses on Loans

(In thousands, except percentages) 2023 2022

Allocation by Loan Type Amount % of Total Allowance Amount % of Total Allowance

Construction and land development $ 8,637 6 % $ 6,464 6 %

Commercial real estate - owner occupied 5,529 4 6,051 5

Commercial real estate - non-owner occupied 48,288 32 43,258 38

Residential real estate 39,016 26 29,605 26

Commercial and financial 34,343 23 15,648 14

Consumer 13,118 9 12,869 11

Total Allowance for Credit Losses on Loans $ 148,931 100 % $ 113,895 100 %

Table 6 - Nonperforming Assets

(In thousands, except percentages) 2023 2022

Nonaccrual loans 1,2

Construction and land development $ 824 $ 549

Commercial real estate loans - owner occupied 9,684 2,340

Commercial real estate loans - non-owner occupied 8,735 4,483

Residential real estate loans 9,986 9,457

Commercial and financial loans 34,693 11,672

Consumer loans 1,182 342

Total Nonaccrual Loans $ 65,104 $ 28,843

Other real estate owned

Construction and land development $ — $ 109

Commercial real estate loans - non-owner occupied 221 221

Residential real estate loans — 200

Bank branches closed 7,339 1,771

Total Other Real Estate Owned $ 7,560 $ 2,301

Total Nonperforming Assets $ 72,664 $ 31,144

Amount of loans outstanding at end of year 2

$ 10,062,940 $ 8,144,724

Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period 0.72 % 0.38 %

Ratio of total nonaccrual loans to loans outstanding at end of period 0.65 0.35

Ratio of allowance for credit losses on loans to total nonaccrual loans 229 395

Accruing loans past due 90 days or more $ 1,179 $ 1,848

1 Interest income that could have been recorded during 2023 and 2022 related to nonaccrual loans was $0.5 million and $1.6 million, respectively, none of which was included in interest income or net income.

2 Net of unearned income.

Table 7 - Maturity Distribution of Available-For-Sale Debt Securities

December 31, 2023

(In thousands) Less than 1 Year After 1-5

Years After 5-10

Years After 10

Amortized Cost

Treasury securities and obligations of U.S.

government agencies $ 1,185 $ 6,066 $ 8,965 $ 21,502 $ 37,718

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 13 2,659 5,255 1,144,826 1,152,753

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 24,950 170,046 109,497 80,520 385,013

Private mortgage-backed securities and collateralized mortgage obligations — — 1,161 134,717 135,878

Collateralized loan obligations — 4,038 114,383 182,434 300,855

Obligations of state and political subdivisions 3,353 — 500 6,633 10,486

Other debt securities — 7,389 — 19,210 26,599

Total Available-For-Sale Debt Securities $ 29,501 $ 190,198 $ 239,761 $ 1,589,842 $ 2,049,302

Treasury securities and obligations of U.S.

government agencies $ 1,172 $ 6,069 $ 8,929 $ 21,275 $ 37,445

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 13 2,619 5,065 961,684 969,381

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 24,465 163,673 101,636 78,498 368,272

Private mortgage-backed securities and collateralized mortgage obligations — — 1,086 123,917 125,003

Collateralized loan obligations — 4,028 113,880 181,547 299,455

Obligations of state and political subdivisions 3,332 — 433 5,625 9,390

Other debt securities — 7,382 — 19,692 27,074

Total Available-For-Sale Debt Securities $ 28,982 $ 183,771 $ 231,029 $ 1,392,238 $ 1,836,020

Weighted Average Yield 1

Treasury securities and obligations of U.S.

government agencies 3.99 % 4.81 % 6.43 % 5.83 % 5.75 %

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 2.79 3.69 3.09 2.03 2.03

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 2.92 3.16 3.14 5.69 3.67

Private mortgage-backed securities and collateralized mortgage obligations — — 6.31 2.76 2.79

Collateralized loan obligations — 7.02 6.99 7.02 7.01

Obligations of state and political subdivisions 2.52 — 1.55 2.16 2.25

Other debt securities — 6.70 — 7.15 7.03

Total Available-For-Sale Debt Securities 2.92 % 3.44 % 5.11 % 2.96 % 3.26 %

1 All yields and rates have been computed using amortized costs.

Table 8 - Maturity Distribution of Held-to-Maturity Debt Securities

December 31, 2023

(In thousands) Less than 1 Year After 1-5

Years After 5-10

Years After 10

Amortized Cost

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities $ — $ — $ — $ 590,676 $ 590,676

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 196 20,679 62,500 6,262 89,637

Total Held-to-Maturity Debt Securities $ 196 $ 20,679 $ 62,500 $ 596,938 $ 680,313

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities $ — $ — $ — $ 478,930 $ 478,930

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities 195 18,960 55,493 4,781 79,429

Total Held-to-Maturity Debt Securities $ 195 $ 18,960 $ 55,493 $ 483,711 $ 558,359

Weighted Average Yield 1

Residential mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities — % — % — % 1.88 % 1.88 %

Commercial mortgage-backed securities and collateralized mortgage obligations of U.S.

government-sponsored entities — 2.48 2.29 1.67 2.28

Total Held-to-Maturity Debt Securities — % 2.48 % 2.29 % 1.88 % 1.93 %

1 All yields and rates have been computed using amortized costs.

Stock Performance Graph

25 unchanged sentences

Insurance agency income 1,151 1,399 1,355 1,291 1,066 1,183 1,160 1,101

SBA gains 921 613 249 322 105 108 473 156

BOLI income 2,627 2,578 2,596 2,264 2,220 2,197 2,068 1,916

7 unchanged sentences

Outsourced data processing costs 8,307 8,003 8,210 12,118 8,609 8,714 20,222 14,553

Telephone and data lines 1,196 1,409 1,518 1,081 1,185 973 908 733

Occupancy 7,234 7,096 7,180 8,037 7,512 7,758 8,583 8,019

10 unchanged sentences

Income before income taxes 43,598 39,253 39,153 33,836 37,800 40,490 41,438 14,524

Income taxes 8,257 9,076 10,189 2,697 7,794 9,115 8,886 5,834

Provision for income taxes 9,513 8,602 8,909 7,830 8,257 9,076 10,189 2,697

Net income $ 34,085 $ 30,651 $ 30,244 $ 26,006 $ 29,543 $ 31,414 $ 31,249 $ 11,827

2023 Quarters 2022 Quarters

(In thousands, except per share data) Fourth Third Second First Fourth Third Second First

Per Common Share Data

1 unchanged sentence

Net income basic 0.40 0.36 0.36 0.31 0.35 0.37 0.37 0.15

2024 Quarters 2023 Quarters

(In thousands, except per share data) Fourth Third Second First Fourth Third Second First

Cash dividends declared:

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk